German State-Owned Bank Embraces Blockchain Technology for Bond Issuance

Table of Contents

• TLDR

Germany’s third-largest state-owned bank, Kreditanstalt fuer Wiederaufbau (KfW), is set to make a significant stride in the adoption of blockchain technology by issuing its first-ever blockchain-based digital bond.

The bond, characterized as a ‘crypto security’ by the bank, will be issued in accordance with the German Electronic Securities Act (eWpG) and is scheduled for completion in the summer of 2024.

TLDR

• Germany’s state-owned bank KfW is preparing to issue its first blockchain-based digital bond in the form of a crypto security in accordance with the German Electronic Securities Act (eWpG).
• The transaction is scheduled to be completed in the summer of 2024, with Cashlink Technologies GmbH acting as the crypto securities registrar.
• KfW aims to demonstrate digitalization, increase the profile of crypto securities, and contribute to the development of the digital securities market in Germany and Europe.
• The bank will conduct dialogues with European institutional investors to familiarize them with this type of transaction and has already secured Union Investment as an anchor investor.
• The bond will be issued through a bookrunner consortium consisting of DZ Bank, Deutsche Bank, LBBW, and Bankhaus Metzler, with DZ Bank also acting as a collective registered holder of the bond.

This move by KfW is part of a broader effort to demonstrate the potential of digitalization in the financial industry and contribute to the development of the digital securities market in Germany and Europe.

As one of the country’s largest promotional banks, KfW recognizes the importance of embracing innovative technologies to maintain the competitiveness of the European financial market.

Melanie Kehr, Member of the Executive Board of KfW Group, emphasized the significance of this initiative, stating,

“With the planned issue of our first crypto security in accordance with the German Electronic Securities Act, we are once again testing an innovation on the financial market and aim to pave the way for future transactions of this type for other market participants.”

The issuance of a blockchain-based bond offers several advantages, including increased efficiency and scalability.

By tokenizing the bond on a blockchain, KfW can automate various aspects of bond management, such as interest payments and maturity settlements, while reducing the need for intermediaries at each step of the process.

This streamlining of capital market processes ultimately benefits the real economy by making transactions safer and allowing capital to flow more quickly.

To ensure the success of this pioneering venture, KfW is placing special emphasis on investor engagement. The bank will conduct dialogues with European institutional investors over several weeks, providing them with sufficient time to familiarize themselves with this type of transaction. KfW has already secured Union Investment, a company with extensive experience in crypto securities, as an anchor investor for the upcoming bond issuance.

The transaction will be executed through a bookrunner consortium consisting of DZ Bank, Deutsche Bank, LBBW, and Bankhaus Metzler, all of which have prior experience with blockchain technology.

DZ Bank will also act as a collective registered holder of the bond, further streamlining the process. Frankfurt-based fintech Cashlink Technologies GmbH has been appointed as the crypto securities registrar for the issuance.

While KfW is taking a significant step towards digitalization with the issuance of this blockchain-based bond, the bank is limiting itself to the digital format of the bond issuance itself. Funds will continue to be processed using traditional payment systems, ensuring a smooth transition and minimizing potential disruptions.

This initiative by KfW follows its previous experiences with the digitalization of its money market and derivatives activities. In 2022, the bank issued its first digital bond in the form of a central register security in accordance with the German Electronic Securities Act.

The current move to issue a blockchain-based bond represents the next major step in KfW’s digital transformation journey.

The combination of technological progress and a regulated environment has provided KfW with the ideal conditions to take this leap forward. Tim Armbruster, Treasurer at KfW, expressed the bank’s optimism regarding the potential benefits of digitalization, stating,

“We believe that digitalisation will be advantageous in terms of increased efficiency and scalability.”

As KfW embarks on this groundbreaking venture, it is setting an example for other financial institutions in Germany and Europe.

By demonstrating the feasibility and advantages of issuing a blockchain-based digital bond, the bank is paving the way for wider adoption of this technology in the financial sector.

This move not only strengthens KfW’s position as a leader in digital innovation but also contributes to the overall competitiveness and integration of European capital markets.

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